The Chief Minister of Andhra Pradesh recently initiated a new programme titled ‘ReStart’ aimed at bolstering the Micro, Small and Medium Enterprise (MSME) sector in the State. This initiative has been launched with the intention of reviving the MSME sector which provides employment to over 10 lakh individuals and consists of around 98,000 units.
Key Points of the ReStart Programme
Under this programme, the government will allocate ₹1,100 crore for the sector’s rejuvenation. Additionally, a special fund of ₹200 crore has been established to offer capital loans at reduced interest rates to these firms. Furthermore, the minimum power demand charges for MSMEs during the months of April, May, and June, have been waived off. This amounts to savings of approximately ₹188 crore.
As part of its procurement strategy, the government plans to purchase approximately 360 products from the MSMEs. It has pledged to clear these outstanding payments within a 45-day period. A significant percentage of these purchases (25%) would be made from micro and small enterprises. The SC/ST community enterprises and women entrepreneurs are set to contribute 4% and 3% respectively.
Efforts to develop required skills for these industries will be facilitated through specialized Skill Development Colleges.
Significance of MSMEs to the Indian Economy
After agriculture, the MSME sector is the largest employment generator. Approximately 120 million individuals are employed by this sector. Spread across the country with around 36.1 million units, MSMEs contribute to about 6.11% of the manufacturing GDP and 24.63% of GDP from service activities.
The MSME ministry aims to increase this contribution to GDP to 50% by 2025 as India aims to become a $5 trillion economy. In terms of exports, MSME contributes almost 45% of total exports from India.
The MSME sector promotes inclusive growth by offering employment opportunities to people from weaker sections of the society, particularly in rural areas. For instance, khadi and village industries that require low per capita investment employ a large number of women in rural parts of India.
Challenges faced by MSMEs in India
Despite their importance to the Indian economy, MSMEs face several challenges. Unregistered MSMEs can reduce costs due to their informality. However, during a crisis, this can limit the government’s capacity to offer assistance.
Limited access to financing remains a key obstacle for the MSME sector. The formal banking system caters to less than one-third of the MSME credit requirement. Payment delays also pose a significant problem, including the delay in GST refunds.
New Definition for MSME
The new MSME classification now defines MSMEs in a composite manner, considering both investments and turnover. Micro enterprises are designated as firms with investments up to Rs 1 crore and turnover under Rs 5 crore. Small enterprises include firms with an investment of up to Rs 10 crore and turnover upto Rs 50 crore. Medium enterprises cover firms with investment up to Rs 20 crore and turnover under Rs 100 crore.
Way Forward
The ReStart Programme, along with the Atma Nirbhar Bharat Abhiyan package from the Central Government, is expected to provide much-needed relief to those engaged in the MSME sector. In order to support the backbone of the Indian economy, other States are encouraged to adopt similar steps. The government also has the potential to alleviate the difficulties faced by this sector by providing tax relief, faster refunds, and promoting liquidity in rural India to boost demand for MSME products.
